In early November 2013, Linda Woodall, Director of Mortgages and Consumer Lending at the Financial Conduct Authority (FCA), addressed the Mortgage Industry Conference and Exhibition of trade body the Council of Mortgage Lenders (CML). In her speech, she set out to firms present how the supervisory approach of the FCA is different from its predecessor, the Financial Conduct Authority.
She summarised the differences in three ways:
· The FCA makes greater use of judgment
· The FCA is more forward-looking – it will identify risks earlier
· The FCA is more outcome focused – it is concerned with the end result for the client rather than simply whether processes and procedures have been followed
In respect of the second issue, Ms Woodall cited the recent exercise with interest-only borrowers. The FCA found that 48% of interest-only borrowers had a shortfall in their repayment plan and a further 10% had no repayment arrangements at all. By working with firms, the FCA has ensured that customers have been warned of these issues in good time to make alternative arrangements.
She went on to summarise the FCA’s approach to supervising firms. All firms are classified as CF1, CF2, CF3 or CF4 according to the regulatory risk they are likely to pose. The highest risk category, CF1, will include the major high street banks, while most small financial advisory firms will be in the lowest category, CF4.
Then Ms Woodall explained the three pillars of the FCA’s supervisory approach. The first, the Firm Systematic Framework, is a tool which decides the level of monitoring a firm should receive based on the risk they pose. The second, Event-Driven Work, concerns their response to unexpected events, such as increases in complaints or mis-selling episodes. Finally, Issues and Products relates to issues identified during the FCA’s ongoing analysis of market sectors.
Ms Woodall urged firms to put fair treatment of customers at the heart of their corporate culture. She cited the example of Clydesdale Bank who were fined £8.9 million by the FCA over their treatment of borrowers who were undercharged on their mortgage payments. Clydesdale’s approach of demanding that all affected borrowers swiftly make up their shortfalls did not effectively balance commercial issues with fair treatment of customers. “[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][Clydesdale] wrongly sought to prioritise its own commercial interests by ordering immediate repayment from customers. This firm is paying the price for its decision to put its bottom line ahead of customer needs,” commented Ms Woodall.
Ms Woodall thanked the CML for its “constructive engagement” with the regulator regarding the Mortgage Market Review (MMR). The MMR will be introduced in April 2014 and will bring about a significant change in the mortgage advice arena.
The new rules to be introduced via the MMR include:
· A ban on self-certification mortgages
· More rigorous requirements relating to lenders’ checking of affordability
· A ban on non-advised sales in most cases
· Interest-only mortgages only permitted where the borrower has a credible repayment plan[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]